What Are Your Legal Rights in a Foreclosure?

Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, the economy, and retirement planning. She is the co-founder of PowerZone Trading, a company that has provided programming, consulting, and strategy development services to active traders and investors since 2004.

Updated September 15, 2022 Fact checked by Fact checked by Pete Rathburn

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

Part of the Series Foreclosure
  1. Foreclosure: Definition, Process, Downside, and Ways To Avoid
  2. Avoid Foreclosure
  3. Workout Agreement
  4. Mortgage Forbearance Agreement
  5. Short Refinance

The Pre-forclosure Period

  1. Pre-foreclosure
  2. Deliquent Mortgage
  3. How Many Missed Mortgage Payments?
  4. When to Walk Away

How Foreclosures Work

  1. Phases of Foreclosure
  2. Judicial Foreclosure
  3. Sheriff's Sale
  4. Your Legal Rights in a Foreclosure
CURRENT ARTICLE

Investing in Foreclosures

  1. Buying Foreclosed Homes
  2. Investing in Foreclosures
  3. Investing in REO Property
  4. Buying at an Auction
  5. Buying HUD Homes

Foreclosure Terms (A-O)

  1. Absolute Auction
  2. Bank-Owned Property
  3. Deed in Lieu of Foreclosure
  4. Distress Sale
  5. Notice of Default
  6. Other Real Estate Owned (OREO)

Foreclosure Terms (P-S)

  1. Power of Sale
  2. Principal Reduction
  3. Real Estate Owned (REO)
  4. Right of Foreclosure
  5. Right of Redemption

Foreclosure Terms (T-Z)

  1. Tax Lien Foreclosure
  2. Trust Deed
  3. Voluntary Seizure
  4. Writ of Seizure and Sale
  5. Zombie Foreclosure

If you cannot keep up with your mortgage payments, the prospect of foreclosure—and with it losing your home—can be daunting. Still, foreclosure is a rigorous legal process, and you have certain rights based on state law along with the mortgage documents you signed.

Knowing your rights can help you navigate the foreclosure process as smoothly as possible or even avoid it if your lender violates any foreclosure requirements. Here's what you need to know.

Key Takeaways

What Is Foreclosure?

Simply put, foreclosure is the legal process that allows lenders to recover the balance owed on a defaulted loan by taking ownership of and selling the mortgaged property as collateral. Nonpayment is what usually triggers default, but it can also happen if a borrower does not meet certain other terms in the mortgage contract.

Your loan servicer is the company that handles your mortgage account, and it may or may not be the company that either issued or currently owns the loan. The loan servicer is required to contact you (or try to do so) by phone to talk about "loss mitigation" no later than 36 days after your first missed payment—and within 36 days of any subsequent missed payments. Loss mitigation is the process by which you and your lender work together to try and avoid foreclosure.

Within 45 days of a missed payment, your servicer must notify you in writing about your loss mitigation options and refer you to someone who can help you try to avoid foreclosure. In general, your servicer cannot start to foreclose until you are at least 120 days behind on your payments.

Foreclosure notices are sent through the mail. If you're behind on your mortgage, read your mail carefully, and be sure to pick up any certified or registered mail.

Right to a Breach Letter

Mortgage contracts typically have a clause that obligates lenders to send a written notice called a "breach letter" to tell you when you are in default. The breach letter must include:

To cure the default and avoid foreclosure, you must pay the entire past-due amount by the date shown in the breach letter, along with any back interest, late fees, and penalties. If you do not—and you have not worked out some other option—foreclosure proceedings will likely begin. In general, you must be behind on payments for at least 120 days before a foreclosure can start, so your lender will likely send a breach letter close to the 90 th day of the delinquency.

Notice of the Foreclosure

You are entitled to notice of a pending foreclosure no matter which state you live in. If it's a judicial foreclosure, you'll get a complaint and summons letting you know that a foreclosure has begun. If it's a nonjudicial foreclosure, you may receive two notices:

  1. Notice of default (NOD). Depending on state law, a nonjudicial foreclosure starts when a notice of default is recorded at the county office. The NOD serves as public notice that you are in default. It contains details about the borrowers, lender, trustee, property, default, action required to cure the default, and a statement that if the default is not cured by the stated deadline, the lender will sell the property at a public sale.
  2. Notice of sale (NOS). The notice of sale might be mailed to you, published in a local newspaper, posted on the property, and recorded in the county land records. It includes details about the property, a statement that the property will be sold at a public auction, and information about the foreclosure sale.

If you do not receive an appropriate notice under your state's laws, you may have a defense against foreclosure. While that does not necessarily mean you could avoid the foreclosure, it may force the servicer to issue a new notice and start the foreclosure process from scratch. That could potentially give you enough time to get caught up on payments or sort out another option. An FDCPA validation notice may be combined with a breach letter.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

Right to Reinstate

Depending on state law, you may be able to stop a foreclosure if you make a lump-sum payment to get up to date on your loan, including any fees and expenses. After that, you resume your regular payments.

In general, you must reinstate the loan by a particular deadline, such as by 5:00 p.m. on the last business day before the property sale is scheduled.

Right of Redemption

Your mortgage contract may also give you the right to reinstate. Check your mortgage or deed of trust for a section known as the reinstatement clause, titled "Borrower's Right to Reinstate After Acceleration" (or similar language) to find out if and how you can reinstate your loan.

If you do not have a right to reinstate through state law or your mortgage contract, the lender may allow you to reinstate after considering your request. If the lender refuses, you can ask a court to allow the reinstatement. In general, a judge would rather avoid foreclosure if you have the cash to get current on your loan.

All states let borrowers pay off debt (including fees and expenses) and "redeem" their property before a foreclosure sale. Some states even allow borrowers to buy back the property after the foreclosure sale. To redeem the property, you pay the entire balance due before the foreclosure sale or reimburse the person or entity that bought the property at the foreclosure sale, depending on the situation.

Right to Foreclosure Mediation

Some states, counties, and cities give property owners facing foreclosure the right to partake in mediation. In foreclosure mediation, you meet with your lender (or servicer) and an impartial mediator to discuss options like a loan modification, short sale, repayment plan, or deed in lieu of foreclosure.

Homeowners are provided rights and protections to help them in the event of a potential foreclosure. Most lenders would prefer to work out a plan than foreclose on your home.

Right to Challenge the Foreclosure

No matter where you live, you have the right to challenge the foreclosure in court. You can participate in the existing foreclosure lawsuit if it's a judicial foreclosure. However, if it's a nonjudicial foreclosure, you must file your lawsuit. In general, it may make sense to challenge the foreclosure if you think the servicer made a mistake or violated the law.

Right to a Surplus

If the property sells at a foreclosure sale for more than you owe (including any fees, expenses, and liens on the property), you are entitled to the excess proceeds—called a surplus. Of course, depending on state law, if the foreclosure sale does not cover your debt, you may be on the hook for a deficiency judgment.

Fair Debt Collection Practices Act Validation Letter

The Fair Debt Collection Practices Act (FDCPA) is a federal law that covers when, how, and how often third-party debt collectors can contact debtors. FDCPA may apply to foreclosures, but it depends on whether it's judicial or nonjudicial:

When FDCPA applies, your mortgage servicer must send you an FDCPA validation notice that includes:

What Does Foreclosure Mean?

A foreclosure occurs when your mortgage payments are past due for 120 or more days. If you don't pay your mortgage, the bank (or lender) will begin a legal process called foreclosure. You can lose your home if you aren't able to stop a foreclosure.

What Does Pre-Foreclosure Mean?

If your home is in pre-foreclosure, it simply means your mortgage lender has issued a notice of pending foreclosure and you are at risk of losing your home. When a home is in pre-foreclosure, it is possible for you to work with the lender and other entities to try to hold onto your home.

How Can I Protect My Home From Foreclosure?

The best way to protect your home from foreclosure is to pay your mortgage bill on time. If you begin to have trouble paying your bill, speak to your lender right away and ask them if they will help you. Most loan servicers do not want to end up with homes in foreclosure and they will often try to help their borrowers.

The Bottom Line

Your legal rights in foreclosure vary depending on state law, your mortgage contract, and your situation. To learn more about your rights, consult with a local foreclosure lawyer who can help you navigate the process and ensure that your rights are protected.